NYT Goes After Debit Card Fees
Debit Card Fees are getting some scrutiny these days. The New York Times has an editorial this week decrying the use of these fees to generate income. They point out all of the small transactions above your account balance can come with a hefty over the limit fee. They cite how “One college student whose bank records were analyzed by the center made seven small purchases including coffee and school supplies that totaled $16.55 and was hit with overdraft fees that totaled $245.” and that “According to a 2008 study by the F.D.I.C., overdraft fees for debit cards can carry an annualized interest rate that exceeds 3,500 percent.”
This is pretty damning stuff. Jon Stewart of Comedy Central’s Daily Show is quick to point out that these very same banks that are making huge profits off of “overdraft fees” are often the same ones that were bailed out recently.
Where Does This Leave Credit Card Users
There really is very little difference between an “overdraft fee” and an “over the limit” fee. Both are essentially short term loans by banks, only the type of card is different. Each carry quadruple digit interest rates that would make a loan shark blush. As I have commented on before, The New Republic entered the debate by highlighting the injustice of not calling these loans and not disclosing an APR. As they put it;
Historically, the rules around the APR–overseen by the Federal Reserve–have not forced lenders to include all charges in this calculation. Why is this OK?
It’s not OK. This would be like cereal manufacturers including only some ingredients on their labels. Or makers of children’s toys not telling you that some dangerous chemicals are involved.
I have to agree. I think that if you are using a debit card or a credit card, any fees on overdrafts or over the limit should be disclosed as a short term loan with their APRs fully spelled out, no matter how many digits they are. The CARD act does make sure that credit card “over the limit” fees be opt in only. In response, American Express and Discover have dropped them completely. While they claim it would not be cost effective to obtain permission from their card holders, what they are really saying is that no sane person, when given the option ahead of time, would pay $40 for an over the limit fee so they can charge a $4 cup of coffee. This blows a hole in their claims that these fees were really a service to consumers. I turns out that it was a service that they didn’t really want.
Friday Afternoon Humor
This is funny and thought provoking at the same time. Listen to this clip, it is only two minutes long. I was laughing uncontrollably for a few minutes. It also really gets you thinking about what “identity theft” is, and how that seems to cover for a lack of security on the bank’s part. This is also another reason I prefer credit cards. There are so many more protections from fraud in credit cards than there is in debit cards and bank accounts.
I would love to try this on a bank if they ever claimed my money was gone due to “identity theft”. Fortunately, that has never happened to me, and I hope it never does.
